Monthly Securities Finance Market Review: Apr 2023
Mike Norwood, Head of EquiLend Trading Solutions, offers analysis on trading outcomes for securities finance amid a multitude of variables in the ongoing turbulent market conditions.
As goes volatility, so goes securities lending activity. The CBOE Volatility Index (The VIX) which serves as something of a proxy for uncertainty sentiment across markets declined significantly in April as global equity markets made broad based but marginal gains. Securities lending transactions as measured by trade counts on EquiLend NGT dropped 23% from March’s all-time high (2.9 million trades) to 2,219,122 trades versus $2.08 trillion. This figure represents flat to slightly down performance year on year versus April 2022 (-0.3% in average daily volumes).
Investors shrugged off bearish macro conditions (persistent inflation and a slowing economy) in favor of better-than-expected corporate earnings globally leading to a rise in equity prices and stable to slightly down bond yields. Bond activity, although down month to month, remained a relative strong point year over year. As a whole, average daily volumes were up 1% YOY with a 73% versus 27% split for investment grade (IG) over high yield (HY) as both segments saw positive global returns in April after sell offs in March.
Higher interest rates typically mark lower market returns so it’s encouraging to see equity trading making gains, however small. This against the broadly static backdrop of the past 6-12 months where regional banks remain under pressure, inflation remains stubbornly high in Europe despite quantitative tightening and remains higher than predicted in the US, although trending in right direction. Investor expectations remained for a 25bps hike from the US Fed followed by a pause or drop which buoyed low level gains in the Eurozone, the UK and Japan ensuring the lending market slowdown was global.
That said there was considerable demand for specials and on EquiLend NGT 23+% of total executions were in the non-GC space, reinforcing the themes noted in the DataLend report indicating monthly gains in securities lending revenue. Industrials, Healthcare and Financials remained the top 3 sectors with Consumer Discretionary and IT rounding out the top 5. TESLA (TSLA) was the most active security on the back of reduced profits in the face of increased EV competition. AI stocks also remain hot following the release of ChatGPT in Q1 2023.
The next few months should be interesting as corporate performance remains in tension with a slowing economy, high inflation and political brinksmanship in the US as arguments around the debt ceiling versus spending levels accelerate. In the short term it is likely that firms will remain risk off as they look for resolutions to some of the open questions and develop insights into how these variables are likely to shake out.
Follow securities finance trends, trading analysis and commentary with EquiLend’s Monthly Trading Commentary across 2023.
EquiLend is a global financial technology firm offering Trading, Post-Trade, Data & Analytics, RegTech and Platform Solutions for the securities finance industry. EquiLend has offices in North America, EMEA and Asia-Pacific and is regulated in jurisdictions around the globe.